Stock Market Technologies: Direct Exchange Access

    In previous topics, we already examined the general structure of the Russian stock market, talked about trading terminals used by investors, and touched upon the topic of creating robots for automated trading thanks to the brokerage systems API . However, at a time when on the exchange for many traders everything is decided in fractions of a second , work on the scheme “user - brokerage system - the core of the exchange” is not suitable for everyone. That is why a technology has appeared that allows you to optimize this chain as much as possible - direct access to the exchange.

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    Why is this needed?


    The situation on exchange platforms around the world in recent years has been developing according to one scenario - traders from all over the world have come together in the struggle to achieve the highest speed of trading operations. First of all, this is due to the rise of the so-called algorithmic trading in which operations are performed by special robots.

    As a rule, robots make a huge number of such operations in one trading session (from thousands to hundreds of thousands), earning on each of them not very much, but thanks to the volume, ensuring their owner a stable income. With this method of trading, speed comes to the fore. If the application sent to the market by your robot is delayed by at least a couple of milliseconds on the way, then you may miss the profit. And in the same way, if information about the situation on the market (market data) is received by the robot with a delay, it will not be able to quickly respond to changes within the framework of the given algorithm, which is also fraught with losses.

    To minimize time costs, traders resort to a number of measures from optimizing their software code to acquiring “wide” communication channels. However, the greatest time gain can be achieved by removing the brokerage system from the application path.

    What is direct access to the exchange?


    Direct access (Direct Market Access, DMA) is a technology of high-speed access to exchange platforms, in which the application is placed in the exchange trading system directly, bypassing the broker's trading system. All this allows to significantly reduce the time of delivery of the application to the exchange and obtaining information about its condition.

    With this organization of the trading process, the trader can count on a significant gain in time. For example, with a direct connection to the stock and currency markets of the Moscow Exchange, the processing time of an application is reduced to 0.5 ms , and in the FORTS and Standard markets it does not exceed 3ms When using the brokerage system, applications are processed within a period of 5-10 ms to 150-500 ms depending on the brokerage system, the type of market, and the connection method. Those. through brokerage systems, applications are processed 10-100 times slower than with a direct connection (although this speed is quite convenient for many merchants).

    Naturally, the use of direct access technology is more expensive (often significantly) and is suitable only for those who perform a large number of operations per day and are willing to pay for their speed.

    Where is it used?


    Despite the fact that technically, thanks to direct access to the exchange, traders can carry out trading operations bypassing the broker, “documented” access is still provided through broker companies. That is, in order to be able to directly trade on, say, the stock market of the Moscow Exchange, an investor needs to conclude an agreement with a broker and purchase the direct access to the exchange service from him already.

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    As a result, Russian customers can gain access mainly to the markets included in the Moscow Exchange:

    • The stock market is the largest stock market in the CIS countries, Eastern and Central Europe. Access is granted to the “Main Market” sectors and to the Standard market sector.
    • Derivatives Market (formerly FORTS) is a leading trading platform for derivatives in Russia and Eastern Europe.
    • The currency and precious metals market is one of the most significant segments of the Russian financial market.

    In addition, some brokers can arrange direct access to foreign markets, for example, the London Stock Exchange (LSE), CME markets (futures and options), etc.

    Varieties of protocols and connection methods


    In general, the direct access scheme is as follows: a server with a trading robot is connected to an intermediate server, which is located as close as possible to the core of the exchange trading system. Special software is installed on this server - the so-called gateways, which are used to transfer orders and market information directly to the trading system. At the same time, various protocols and connection methods are used to perform operations and receive data.

    Protocol FIX (Financial Information eXchange) - a protocol for the exchange of financial information, which is the world standard for the exchange of data between participants in exchange trading in real time. It is supported by the largest global stock exchanges, including the Moscow Exchange.

    To obtain market information (Market Data), the FAST protocol (Fix Adapted for STreaming) is used - a standard developed by the creators of the FIX protocol, which allows significant data compression capabilities to transfer large volumes of market information with minimal time delays. In addition to the Moscow Exchange, it is used on the NYSE, Nasdaq-OMX and many other world sites.

    Native protocols are also used for direct connection. These protocols arose even before the unification of the MICEX and RTS exchanges into the Moscow Exchange.

    So on the markets related to the RTS exchange (FORTS - futures and options, Standard ), a protocol is used for direct transactions and receiving data in the connection modePlaza II .

    To carry out trading operations and obtain exchange data on sites previously referred to the MICEX exchange (currency and stock markets), the MICEXBridge (TEAP) bidirectional gateway is used .

    Technically, connecting to the Moscow Exchange is possible in several ways, such as connecting via the Internet, connecting using a universal connection scheme, or using the exchange colocation.

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    Universal Connection Scheme

    In more detail, we will consider financial transfer protocols and methods of connection in one of the following articles.

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    For those traders who do not use to trade robots, it is possible to trade on a direct connection using the more familiar trading terminal. However, the software that works with the broker trading system does not work according to the exchange protocols of direct connection, therefore, separate programs are created for it (some of them are presented here ).

    In addition, due to the fact that direct connection technologies are open, investors can independently develop software for themselves. However, since these programs ultimately have almost direct access to the core of the trading system, the exchange introduced a procedure for certification of trading solutions from third-party developers in order to exclude the possibility that the “furious robot” put all the system on the spot. This procedure goes through the development of individual investors, as well as software created by special companies on order.

    What else?


    If you continue to move along the chain of reducing the time to complete operations, it becomes obvious that you need to place a trading robot not only logically, but physically as close to servers with the core of the exchange trading system as possible.

    The robot can be placed both on a separate server, which can be racked in a data center (this service is called Colocation), and on a virtual machine (Hosting), which, in turn, runs along with other clients' virtual machines on a server also installed in the data center , near the exchange servers. Hosting services are provided, as a rule, only by large brokers who have their own racks in data centers.

    Now, the trading servers of the Moscow Exchange are located in the data center M1. Trading robots connected to exchange servers can be located in two zones - the so-called DMA-free collocation zone and the immediate collocation zone of the exchange.

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    Placing in the exchange collocation zone has obvious advantages: virtual machines and servers are connected directly to the exchange core, while from the free zone the connection is through the MICEX Gate and Plaza II intermediate servers. In addition, receiving data via the FAST protocol and a dedicated channel for connecting to the IOB London Stock Exchange (trading Russian ADRs in London) are available only from the exchange collocation zone.

    One way to significantly reduce infrastructure costs is to place the robot in a free colocation zone. The services provided in it are almost similar to the services of the exchange colocation zone. However, free cheese happens only in a mousetrap; for the relative cheapness of placing a robot, you will have to “pay” a few milliseconds to increase the speed of transaction processing.

    In addition, since the interfaces for creating direct connection software initially do not imply any graphical options for displaying trading information, the ability to synchronize orders and positions, orders and positions formed on a direct connection with the broker's trading system in real time is almost a necessary thing for control of trading operations. Therefore, many brokers try to provide their clients with such opportunities.

    All this, of course, costs money and, in comparison, with the usual access to the exchange through brokerage systems, is quite large. However, for those investors who have reached a certain level of income - such expenses make sense. According to representatives of the exchange, the owners of the robots that won the contest "Best Private Investor" in 2011 spent on services related to direct access from 100 to 500 thousand rubles. per month. However, taking into account the fact that some traders (although there were not so many of them) managed to reach a yield of 8000% and earn millions of rubles per month (taking into account all the broker's commissions and exchanges), these expenses quickly paid off.

    That's all for today! Thank you all for your attention, we will be happy to answer questions in the comments.

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